R. B. SHREERAM DURGA PRASAD & FATEHCHAND NURSING DASversusSETTLEMENT COMMISSION (IT & WT) & ANR.

         R.B. SHREERAM DURGA PRASAD & FATEHCHAND
                                                                                    A
                        NURSING DAS
                             v.
            SETILEMENT COMMISSiON (IT & wt) & ANR.

                               JANUARY 27, 1989
                                                                                    i3
                       [SABYASACHI MUKHARJI AND
                        S. RATNAVEL PANDIAN, JJ.l

           Income Tax Act, 1961: ss. 245C, 245D( I) & 245D(JA)-
     Application for Settlement-Objections by Commissirmer-Whether
     Settlement Commission should hear the applicant oli the objections
     made by the Commissioner.                                                      c

            Constitution of India, Article 136: Decision of Settlement
     Commission under Income Tax Act-Judicial review of-Court con-
     cerned with legality of procedure followed and not with validity of
     order.

           Administrative Law: Natural justice-Violation of rule of audi
     alteram partem-Effect of-Judicial review-Concerned not with the
"-   decision but with the decision making process.

            Sub-section (I) of section 245C of the income Tax Act, i96l enti• E
     ties an assessee, at any stage of the case, to make an a11piication to the
     Settlement Commission to have his case settied. Suh-section (I) of
     section 2450 requires the Settlement Commission, as and when such all
     application is made to cali for a report from the Commissioner Of·
     Income Tax. The lirst proviso thereto interdicts tejectioll of the ap111ica-
     tioit nuder that sob-section unless an opportunity has been given to the F
     applicant of being heard. The second proviso thereto provides that fio
     application shall be proceeded with under that sub-section if the
     Commissioner objects to the same on the gtonnd that concealment of
     particulars of income on the part ol' the applicant or perlleltation oi'
     fraud by him for evading any tax has been established or is likely to he
     established. Sub-section (IA) inserted in section 2450 by the Finance G
     Act, 1979 empowered the Settlement Commission to overrule the objec-
     tions of the Commissioner.

           The appeiiant made a composite application under section 245C Of
     the Act for settlement of his assessments for the assessment years I 948-
     49 to 1975-76. the Comlilissionei' objected ttl the jlftljltlsais under sec•   H
                                         335
    336                   SUPREME COURT REPORTS            [19891 1 S.C.R.

    tion 245D(I) for settlement for the years 1948-49 to 1959-60, but agreed



                                                                                '
A
    to the settlement for the later years. The Commission accordingly made
    an order an 24th August, 1977 rejecting the application for settlement
    for the years 1948-49 to 1959-60. The appellant thereupon applied to
    the Commission to recall its order since the same had been made with-
    out furnishing him any opportunity of hearing. That application was
B   pending. When sub-section (IA) was inserted to section 245D, the
    appellant applied to the Commission to permit him to contest the objec-
                                                                                >...
    lions of the Commissioner contending that these should be dealt with in
    accordance with the amended provisions of section 245D(IA). On 7th

                                                                                ~
    August, 1987 the Settlement Commission accepted the first part of the
    contentions holding that the applicant was entitled to a re-hearing since
    its order of 24th August, 1977 had been made in violation of the princi-
c   pies of natural justice and also express provision of section 245D(l)
    proviso, but rejected the second part of the submission on the view that    'i
    the application for settlement would have to be disposed of in accord-
    ance with law which prevailed on 24th August, 1977. It further held
    that since the Commissioner had objected only to some of the years
D   under settlement the entire application would have to be rejected.

          Allowing the appeal by Special Leave,

          HELD: I. It is necessary as a concomitant of the fulfilment of        >I
    natural justice that an applicant before the Settlement Commission
E   should be heard before his application under Section 245C of the Act is
    rejected. The order made by the Commission on 24th August, 1977 in
    the instant case in violation of the principles of natural justice was,
    therefore, of no value. If that is so, then the application made for
    settlement was still pending before the Commission when the amend-

F
    ment made by the Finance Act of 1979 came into effect and the said
    amendment being procedural, it would govern the pending proceedings
    and the Commission would have the power to overrule the objections of
    the Commissioner. [342E; 341E, G-HI
                                                                                1
          Income Tax (Central), Calcutta v. B.N. Bhattachargee & Anr.,
    [19791 Vol. 118 lTR 461; M.S. Gill v. Chief Election Commissioner,
G   [19781 1 SCC 405; Maneka Gandhi v. Union of India, [19781 I SCC
    248; State of Orissa v. Dr. (Miss) Binapani Dei & Ors., [1967] 2 SCR
    625; Ridge v. Baldwin, [1964] A.C. 40; Anisminic Ltd. v. Foreign
    Compensation Commission, 11969] 2 A.C. 147 and Administrative
    Law, by H. W.R. Wade,Sth Edu. pp. 310-311 referred to.             '
                                                                                *
H         2.1 The appellant had a right to be heard on the objections of the
R.B. SHREERAM v. SETILEMENT COMMISSION [MUKHARJI, J.]                  337

Commissioner. But no clear opportunity was given to him to make
                                                                              A
submissions in the sense to demonstrate that the Commissioner was not
justified in making the objections and that the Commission should not
accept or accede to the objections. He should, therefore, be heard on
the said objections. [3420-E]

      2.2 Though for the relevant orders for the years for which the          B
Commissioner had objected the concealment had been upheld in the
appeal before the appropriate authorities, but in spite of this it may be
possible for the appellant to demonstrate or to submit that in disclosure
of concealed income for a spread over period settlement of the entire
period should be allowed and not bifurcated in the manner sought to be
suggested for the Commissioner's objections. This objection the appel-
lant should have opportunity to make. [342F-G I                               c
      3. In exercise of its power of judicial review of the decision of the
Settlement Commission unde~ Article 136 of the Constitution the Court
is concerned with the legality of procedure followed and not with the
validityoftheorder. [342G]                                                    D

    Chief Constable of the North Wales Police v. Evans, (1982] 1
W.L.R. 1155 referred to.

      4. The order dated 7th August, 1987 is set aside and the matter is
remanded back to the Settlement Commission to hear and dispose of the         E
settlement petition in accordance with law. [343A]

     CIVIL APPELLATE JURISDICTION: Civil Appeal No. 528
{NT) of 1989.

     From the Judgment and Order dated 7.8.i987 of the Settlement             F
Commission (IT & WT), New Delhi in Settlement Appln. No. 22/1/3/
77-IT.

      Harish N. Salve and Miss Bina Gupta for the Appellant.

      Dr. V. Gauri Shankar and Miss A. Subhashini for the Respondents.        G

      The Judgment of the Court was delivered by

      SABYASACHI MUKHARJI, J. Special leave granted.

      This is an appeal against the judgment and order of the Settle-         H
        338                   SUPREME COURT REPORTS            11989) 1 S.C.R.

        ment Commission dated 7th August, 1987. the fact that an appeal
    A   under Article 136 of the Constitution ties against the order of the
        Settlement Commission is now beyond pale of any controversy in view
        of the decision of this Court in Commissioner of Income Tax (Central),
        Calcutta v. B.N. Bhattachargee and another, [1979) Vol. 118 Income
        Tax Reports 461. The appellant had applied to the Settlement
    B   Commission for settlement of his assessment for the assessment years
        1948-49 to 1975-76 under the Income-tax Act, 1961 (hereinafter refer-
        red to as 'the Act'). That application had to be proceeded in accor-
        dance with section 245C of the Act which is as follows:

                   "245C. (1) An assessee may, at any stage of a case relat-
                   ing to him, make an application in such form and in such
    c              manner and containing such particulars as may be pres-
                   cribed to the Settlement Commission to have the case set-
                   tled and any such application shall be disposed of in the
                   manner hereinafter provided."

    o   Sub-sections (2) and (3) of section 245C of the Act are not relevant for
        our present purpose.

              The application made by the appellant was a composite one for
        settlement of his assessments for the assessment years 1948-49 to 1975-
        76. The purpose for the introduction of the Settlement Commission
    E   has been explained by this Court in the aforesaid decision. This Court
        observed that these are contained in Chapter XIX-A of the Income-tax
        Act, 1961. The said Chapter was enacted by the Taxation Laws
        (Amendment) Act, 1975 whose beneficiaries were ordinarily those
        whose tax liability was astronomical and criminal culpability perilous.
        As has been observed that this Chapter was introduced with the debat-
    F   able policy, fraught with dubious potentialities in the context of Third
        World conditions of political peculium and bureaucratic abetment,
        that composition and collection pf public revenue from tycoons is
        better than prosecution of their tax-related crime and litigation for
        total revenue recovery. The Wanchoo Committee appointed by the
•       Government of India had recommended this step.
    G
              It appears that on Uth August, 1977 the Commissioner of              :.\
        lncome-tax objected to the proposal of the appellant under section
        2450(1) of the Act. The Commissioner objected to the settlement for
        the years 1948-49 to 1959-60, but agreed to the settlement for later
        years. The Commissioner, it appears, accordingly made an order on
    I-I 24th August, 1977 rejecting the application for settlement for the years
                       -" '-_                       \

R.B. Sl!REERAM, v. SETILEMENT COMMISSION (MUKllARJI, J.(           339

1948-49 to 1959-60. The appellant on 20th September, 1977 applied to A
the Commission to recall its earlier order dated 24th August, 1977 ..
since the same had been made without furnishing any opportunity of
hearing to the appellant.

Section 245D( 1) provides as follows: ·
                                                             "            B
           "245D. PROCEDURE ON RECEIPT OF AN APPL!-
              '   CATION UNDER SECTION 245C
                         - __ l_, ------ ·-- - --

           (1) On receipt 'of an application under Section 245C, the
           Settlement Commission shall call for a report from the
           Commissioner and on the basis of the materials contained
           in such report and having regard to the nature and circum-
                                                                          c
           stances of the case or the complexity of the investigation
           involved therein, the Settlement Commission may, by
           order, allow the application to be proceeded with er reject
           the application:         -
                 '
                                                                          D
                 Provided that an application shall not be rejected
           under this sub-section unless an 'opportunity has been given
           to the applicant of being heard.

                 Provided further that an application shall not be pro-
           ceeded under this sub-section if the Commissioner objects      E
           to the application on being proeeeded with on the ground
           that concealment of particulars of income on the part of the
           applicant or perpetration of fraud by him for evading any
           tax or other sum chargeable or imposable under the Indian
           Income-tax Act, 1922 (XI of 1922), or under this Act, has
           been established or is likely to be established by any         F
           Income-tax authority, in relation to the case."

       About hearing the applicant prior to the rejection of the applica-
 tion this Court in the aforesaid decision at page 472 of the report held
 that an applicant before the Settlement Commission was entitled to a
 hearing before his application for composition was rejected. This G
 Court observed that section 245D(l) does not negate natural justice
·and in the absence of an express exclusion of the rule of audi alteram
 partem, it is fair, and indeed fundamental, that no man be prejudiced
 by action without opportunity to show to the contrary. Natural justice
 must be followed. This also is the natural corollary of the decisions of
 this Court in M.S. Gill v. Chief Election Commifsioner, (1978) I SCC H
    340                  SUPREME COURT REPORTS             [1989] 1 S.C.R.

    405andManekaGandhiv. Union of India, [1978] 1SCC248.
A
          The Finance Act, 1979, however, was amended with effect from
    !st April, 1979 and sub-section (IA) was inserted to section 245D
    which empowered the Settlement Commission to overrule the objec-
    tion of the Commissioner. Sub-section (IA) of section 245D reads as
B   follows:

               "Notwithstanding anything contained in sub-section(!), an
               application shall not be proceeded with under that sub-             !
               section if the Commissioner objects to the application
               being proceeded with on the ground that concealment of
               particulars of income on the part of the applicant or perpet-
                                                                               l
c              ration of fraud by him for evading any tax or other sum
               chargeable or imposable under this Act, has been estab-
               lished or is likely to be established by any Income-tax
               Authority in relation to the case:

D                    Provided that where the Settlement Commission is
               not satisfied with the correctness of the objection raised by
               the Commissioner the Settlement Commission may, after
               giving the Commissioner an opportunity of being heard, by
               order, allow the application to be proceeded with under
               sub-sectior1 (!) and send a copy of its order to the
E              Commissioner."

  Though the Commission is empowered not to accept the objection of
  the Commissioner yet the Commissioner's objection is of "lethal
  potency" as described by Krishna Iyer, J. in the aforesaid decision.         _J,
                                                                               _
  From the facts of this case, however, it has to be noted that the appel-         ~
F lant applied to the Settlement Commission to permit him to contest the
  objections of the Commissioner on the proviso now inserted as
  mentioned above. It has to be borne in mind that this was done after
  the proceedings had proceeded to a certain extent. As mentioned
  hereinbefore, the appellant had applied to the Settlement Commission
  as aforesaid on 22nd January, 1977. On 12th August, 1977 the Commis-
G sioner had tendered the objections as mentioned hereinbefor~. On
  24th August, 1977, the Settlement Commissioner made an order
  rejecting the application for settlement for the assessment years 1948-
  49 to 1959-60. This had been done without hearing the appellant. On
  20th September, 1977 the appellant applied to the Commission to
  recall its order dated 24th August, 1977 since it had been passed with-
H out giving an opportunity of hearing to the appellant. That application
 R.B. SHREERAM v. SEITLEMENT COMMISSION [MUKHARJ!, J.[                 341

 was pending. In the meantime, as mentioned hereinbefore, on !st
                                                                              A
 April, 1979, the Finance Act, 1979 inserted sub-section (IA) t<J section
 245(0) which empowered the Settlement Commission to overrule the
 objections of the Commissioner. On 29th May, 1979 the appellant
 applied to the settlement Commission to permit him to contest the
 objections of the Commissioner under the said proviso now inserted.
 The matter was taken up after a long gap in June 1987 and it was heard       B
 on 18th June, 1987 and 1st July, 1987. The appellant contended that
 the order of 24th August, 1977 should be recalled and the objections of
 the Commissioner be dealt with in accordance with the amended
 provisions of section 2450( IA) and it also contended that if the Com-
 missioner's objections were not to be interfered with then the entire
 application should be dismissed. On 7th August, 1987, which is the
 date of impugned order in this appeal, the Settlement Commission             c
 accepted the first part of the contentions and held that the applicant
 was entitled to a rehearing since its order of 24th August, 1977 had
 been made in violation of the principles· of natural justice and also
 express provision of section 2450(1) proviso, but rejected the second
 part of the submission that the application for settlement made by the       D
 petitioner would have to be disposed of in accordance with law which
 prevailed on 24th August, 1977. The Commission, however, held
 that since the Commissioner had objected only to some of the years
 under settlement, the entire application would have to be rejected. It
 is this order which is under challenge before us.
                                                                               E
        We are definitely of the opinion that on the relevant date when
  the order was passed, that is to say, 24th August, 1977 the order was a
  nullity because it was in violation of principles of natural justice. See in
  this connection, the principles enunciated by this Court in State of
  Orissa v. Dr. (Miss) Binapani Dei and Ors., [1967] 2 SCR 625 as also
  the observations .in Administrative Law by H.W.R. Wade, 5th Edi- F
  tion, pages 310-311 that the act in violation of the principles ofnatural
  justice or a quasi-judicial act in violation of the principles of natural
  justice is void or of no value. In Ridge v. Baldwin, [1964] A.C. 40 and
  Anisminic Ltd. v. Foreign Compensation Commission, [1969] 2 A.C.
  147 the House of Lords in English has made it clear that breach of
  natural justice nullifies the order made in breach. If that is so then the G
  order made in violation of the principles of natural justice was of no
  value. If that is so then the application made for the settlement under
  section 245C was still pending. before the Commission when the
  amendment made by Finance Act of 1979 came into effect and the said
  amendment being procedural, it would govern the pending proceed-
. ings and the Commission would have the power to overrule the objec- H
    342                   SUPREME COURT REPORTS           11989] l S.C.R.

  tions of the Commissioner. Dr. V. Gauri Shanker, appearing for the
A
  Revenue, did not seriously contest that position. He accepted t\1e          1'
  position•that the law as it is, after the amendment aut.horises the
  Commission to consider and overrule the.Commissioner's objection.
  He also very fairly, in our opinion, and rightly accepted the posi(ioµ_
  that the appellant was entitled to be heard on the Commissioner's
B objections. It appears to us, therefore, if that is the position then, iµ
  our opinion, the appellant was entitled to be heard on the objections
  of the Commissioner. As mentioned hereinbefore, the only short
  ground which was sought to be convassed before us was whether after
  the amended Act the order had been rightly set aside and whether the        ~'

  appellant had a right to be heard on the objections of the Commis-
  sioner. Mr. Harish Salve, counsel for the appellant contends that. it
c had a right to be heard. On the other hand, Dr. V. Gauri Shankar,
  learned counsel for the respondents submitted that the order
  proceeded on the assumption that the objections had been heard. He
  did not, in fairness to him it must be conceded, contest that in a matter
  of this nature the appellant had a right to be heard. Reading the order,
D it appears to us, that though the appellant had made submissions on
  the Commissioner's objections but there was no clear opportunity
  given to the appellant to make submissions on the Commissioner's
  objections in the sense to demonstrate that the Commissioner was not
  justified in making the objections and secondly, the Commission
  should not accept or accede to the objections in the facts ancl circum-
E stances of the present case. We are of the opinion that in view of the
  facts and circumstances of the case and in the context in which these
  objections had been made, it is necessary as a concomitant of the
  fulfilment of natural justice that the apellant should be heard on the
  objections made by the Commissioner. It is true that for the relevant
  orders for the years for which the Commissioner had objected (be            -~
F concealment had been upheld in the appeal before the appropriate             )
  authorities. But it may be that in spite of this concealment it may be
  possible for the appellant to demonstrate or to submit that in disclo-
  sure of concealed income for a spread over period settlement of the
  entire period should be allowed and not bifurcated in the manner
  sought to be suggested for the Commissioner's objections. This objec-
G tion the appellant should have opportunity to make. In exercise of our
  power of judicial review of the decision of the Settlement Commission
  we are concerned with the legality of procedure followed and not wi.th
  validity of the order. See the observations of Lord Hailsham in Chief
  Constable of the North Wales Police v. Evans, 11982] 1 W.L.R. 1155.
  Judicial Review is concerned not with the decision but with the c!e~i-
H sion making process.
R.B. SHREERAM v. SETILEMENT COMMISSION [MUKHARJI, J.J               343

      We therefore allow the appeal. We set aside the order of 7th A
August, 1987 and remand the matter back to the Settlement Commis-
sion to hear and dispose of the settlement petition made by the appel-
lant dated 22nd January, 1977 taking into consideration objections
made by the Commissioner and the objections made by the appellant
to the Commissioner's objections and after giving the appellant an
opportunity of showing reasons and causes why the Commissioner's
                                                                            B
objections should not be accepted by the Commission. After consider-
ing the said objections of the Commissioner as well as the objections to
the Commissioner's objections made by the appellant, the Settlement
Commission would be free to pass such orders as it considers fit and
proper in accordance with the law. Since the matter is pending for a
long time, we do hope that the Settlement Commission will dispose of C
the matter as expeditiously as possible. It is not necessary for us in this
appeal to express any opinion on the correctness or otherwise of the
Commissioner's objections or on the validity of the appellant's objec-
tions to the Commissioner's objections.

      The appeal is disposed of accordingly. There will be no order as · D
to costs.

P.S.S.                                              Appeal disposed of.